What is the difference between financial and managerial accounting?

Financial accounting primarily serves external stakeholders by providing information for financial statements, while managerial accounting supports internal decision-making. Managerial accounting analyzes operational data, such as variable and fixed costs, to help managers make informed choices. Unlike financial accounting, it doesn’t follow strict reporting standards for external use. For instance, it may suggest cost-saving measures like adopting lower-cost raw materials based on cost analysis. In essence, financial accounting communicates a company’s financial health to outsiders, while managerial accounting aids internal management in optimizing operations and costs.